On October 8, Paschal Donohoe’s budget forecast that in 2020, the State would spend some €71.4 billion – a 7 per cent increase on 2019’s projected spend of €66.6 billion. On the income side, the minister’s budget speech predicted that “an increase in tax revenue is also in prospect for 2020”. 

And things had been going well. Tax collection numbers for January and February 2020 were up 14 per cent on last year, producing a budget surplus of over €1 billion for the first two months of this year.

Budget 2020 budget was framed with Brexit in mind or, as the minister put it, “times without precedent”. Not everything can be planned for. Answering questions on the state’s rainy-day fund during 2019, Donohoe agreed that “unfortunately, we cannot predict with any great certainty what will trigger a future economic shock”. 

The first Irish public health emergency meeting on coronavirus took place on January 27, at which time the European agency monitoring the disease believed that “the risk of onward transmission is rated as low”. That was not to be. After Ireland began a progressive lockdown from February 29, when the first domestic case was confirmed, the economic effects of the virus began also to bite and to multiply. 

In Ireland, the authorities have responded positively also. But just what have the Revenue Commissioners put forward, and how does it compare internationally?

The extent of the tax shock caused by Coronavirus will only be known over the coming months when Vat and PAYE returns are filed and, later, when returns of business income taxes become due. While some taxable events affected by the virus can be postponed – for example, communion parties and court cases – others such as creche day-places or hotel bed-nights will be lost to the economy forever. 

Whether or not tax producing economic activity will be replaced post-Covid, many businesses will face a cash crunch for an unforeseeable period of time. Even if closed or suffering a severe decline in consumer take-up, businesses will (unless other arrangements are made) need to make leasing, rental and loan repayments. And tax payments. 

Across the world, revenue and national authorities have been responsive to the needs of business. In Ireland, the authorities have responded positively also. But just what have the Revenue Commissioners put forward, and how does it compare internationally?

Ireland’s tax response

The Irish economic response is being led by finance minister Paschal Donohoe and business minister Heather Humphries Photo: RollingNews.ie

The Revenue Commissioners have introduced an easy to understand guide for SME businesses experiencing difficulties related to the Covid-19 outbreak. 

Revenue advice is to continue to send in tax returns on time. The next returns due by most businesses are Vat returns for the January/February 2020 period, due on 23 March. A liability to pay over tax deducted from employees’ wages also arises monthly. The Revenue have stated, however, that interest will not apply to Jan/Feb Vat paid late or to Feb/March employment taxes paid late. 

Normally, if a business is late paying its taxes, it faces the prospect of having its tax clearance certificate withdrawn and thus affecting its ability to receive payments from State customers. Revenue have pledged “that the current tax clearance status will remain in place for all businesses over the coming months”. Tax clearance certificates are also necessary for certain businesses, including pubs and hotels, to continue trading.

Revenue have also stated that all debt enforcement activity is suspended until further notice. Revenue enforcement activity to collect unpaid taxes includes sending in the sheriff, referring the case for legal action, attaching a business’ bank account, obtaining taxes due directly from persons who, in turn, owe money to the company or applying to the High Court to have the business wound up

In essence, Revenue’s pledge allows an affected business to examine its cash flow on the basis that tax payments due in March can be postponed without attracting interest or the loss of the business’ tax clearance certificate.  As the tax payments involved will normally be large in a trading business, the availability of the cash in the business’ bank account will have a positive knock-on impact on the business’s compliance with its banking covenants during perhaps a period of significant decline in sales. 

Revenue’s current position is, of course, a temporary one and will need to be revisited over the coming weeks. One potential issue to consider is the feasibility of businesses being able to adhere to various tax filing deadlines in circumstances where either their financial staff or externally provided accounting and tax assistance are not available because of relevant staff not being in a position to provide normal services due to, for example, working from home. 

Ireland has announced a special unemployment assistance payment – the Pandemic Unemployment Payment – available to those laid off and subject to reduced hours (including self employed persons) to last for six weeks and having a simplified application process. There is also, for those affected health wise, including persons who are self isolating, a special social welfare sickness payment available. 

The government wishes business who have ceased to trade in the interim to continue to pay staff at least €203 per week and, in return, the government will (in recognition of employees maintaining the relationship with the employer and, therefore, not having to make an unemployment claim) refund the business for the amount so spent. This scheme will be taken care of by Revenue who will make the relevant repayments on a ‘next day’ basis – a significant comfort to affected employers.

In terms of providing state-assisted finance, a range of Covid-specific loan schemes have been announced including a credit guarantee scheme for loans up to €1 million, a micro-enterprise scheme for loans up to €50,000, a dedicated €200 million scheme led by the Strategic Banking Corporation of Ireland aiming to provide loans of up to €1.5 million with €500,000 of same being unsecured and with a maximum interest rate of 4 per cent, and Enterprise Ireland continues to operate a €200 million package to support business restructuring.

The main banks, following a meeting with Paschal Donohoe, have agreed to implement a loan repayment break of three months for personal and business customers affected by Covid-19 and, thereafter, to conduct ongoing reviews of borrowers’ needs. The move will be done in a manner not impacting the customer’s credit rating. Affected borrowers will need to approach their bank to avail of the loan repayment break.  Court proceedings against loan defaulters will be deferred by three months. As well, the Central Bank has cut the banks’ capital holding requirements making it easier for them to maintain and extend further credit to businesses at this time. 

Of course, Ireland is not the only country in the world where businesses will suffer because of Covid-19. Measures adopted by other countries in the taxation sphere might contain some useful ideas for future implementation in Ireland. 

Here’s what some other countries are doing:

USA

The USA’s tax filing deadline is 15 April. The US Treasury has decided not to extend the tax filing date but has permitted individuals and non-corporates to delay paying taxes up to $1 million until 15 July and, for corporates, $10 million until the same date. The measure aims to keep $300 billion circulating within the economy in the short term. Postponements of tax payments will not attract interest or penalties. Taxpayers need to apply for the deadline extension – it will not apply automatically.

The institute representing US CPA accountants had called for an automatic extension of federal filing and payment deadlines for businesses until 15 October 2020 and the waiver of tax penalties and interest in the meantime. The Treasury’s proposal partly meets that call.

As well as tax measures, the US is considering making direct payments to individuals based on income and family size. The US Treasury has earmarked $500 billion for this measure. The IRS will process the payments. This proposal – and variations of it – is still being discussed by Congress. 

The US Treasury will also underwrite a federal lending guarantee for “small business interruption loans” for those employing less than 500. The amount of the loan is capped at six weeks’ pay per company employee, with a cap on qualifying salaries. In return for the loan, businesses must continue to pay staff. 

On the state level, a number of states have announced relief measures including California which has granted a 60-day extension on the obligation to file/pay state payroll taxes without attracting penalties or interest. In California, the first quarter business taxes are due on 30 April and, in respect of this obligation, the state is deeming that no such pre-payment is necessary, meaning that the monies due may instead be paid in February 2021 without attracting interest or penalties. 

Ireland’s major deadline for filing corporation tax returns is in September (nine months after most businesses’ December year end) with the income tax deadline happening in October so, unlike in America, a decision on any extension of the main filing dates won’t arise for some time in Ireland.      

Canada

Canada has announced that individuals may defer their tax filing from April until June. Individuals and businesses will be permitted to defer, until September, payments of income taxes becoming due and owing between 18 March and September and without interest or penalties accruing.

All tax audits have been suspended and no new tax audits will begin within the next four weeks.

Canada has also provided increased investment to federal lending agencies such as the Business Development Bank of Canada and Export Development Canada and has relaxed bank regulations giving banks scope for additional lending. As outlined, Ireland has already made significant announcements regarding state lending support for businesses.

Canada proposes to temporarily increase child support and tax credits for those on moderate income, aiming to deliver a state benefit for the average family of $1,500.

Australia

The Australian Tax Office, unfortunately no stranger to dealing with emergencies e.g. the recent spate of bushfires in that country, has pledged to “implement a series of administrative measures to further assist Australians experiencing financial difficulty as a result of the Covid-19 outbreak”. These measures “which will not automatically be applied” (meaning a business has to apply for them), include a deferment of tax payments, changing GST (akin to VAT) reporting from quarterly to monthly so businesses can access refunds quicker, an ability to reduce instalment arrangements (pay as you go) to zero for a time as well as scrapping certain tax and interest penalties incurred after January 23, 2020. 

As well as the administrative response, a package of economic measures was announced by the Australian government on March 12 and some are awaiting legislative action before they can be implemented.

Australia has an “instant asset write-off” programme which allows an immediate write-off for corporation tax purposes for certain capital expenditure. At present, the scheme allows assets up to $30,000 in businesses with turnovers up to $50 million to be immediately written off against tax.  The respective thresholds will be increased to $150,000 and $500 million respectively for assets used and installed before June 30, 2020. To encourage investment in the longer term, for assets bought and put into use (e.g. assets worth over $150,000), the government will allow a 50 per cent tax write-off in the first year, with the balance being written off for tax purposes thereafter as normal – the assets in this category must be installed by June 30, 2021.

Generally, investment in plant and machinery in Ireland is written off over eight years, at 12.5 per cent a year. With the corporation tax rate at 12.5 per cent in Ireland, though, an introduction of a scheme of accelerated capital allowances in Ireland to respond to Covid-19 would have less of an impact than in Australia where the corporation tax rate is much higher.  The introduction of a modified scheme, along the Australian lines but double-weighted for a short time, might encourage Irish business to continue and increase capital investment in the period immediately after the present Covid-19 crisis. 

Australia will put money into the pockets of businesses who employ staff to give cash-flow assistance to businesses. The benefit is aimed at SMEs with a turnover below $50 million. The benefit will be based on 50 per cent of the employment taxes withheld by employers, up to a maximum of $25,000 per business. Any business employing anyone will receive a minimum payment of $2,000.  The payment will be tax-free. 

Australia is also implementing a wage subsidy for apprentices and trainees of 50 per cent of their wages for nine months up to September 30, 2020 for employees already in training in March 2020.  It will be limited to small employers (less than 20 employees) and be capped at $21,000 per eligible employee. 

Australia will also introduce a $750 payment to certain taxpayers e.g. pensioners and others in receipt of social security payments. The payment will be made on March 31 and will be tax-free.  The payment is officially termed the “one-off economic support payment”.

New Zealand

New Zealand’s Inland Revenue has announced a series of administrative measures to help businesses, many of which were already available on application, including the ability to obtain refunds of estimated taxes paid in advance, instalment arrangements for tax due, filing extensions for due taxes and the ability to apply for a write-off of taxes owing and due to serious hardship. The Inland Revenue will be given the power to waive interest on late tax payments for affected businesses on payments due after February 14.

Depreciation deductions for new and existing buildings, including hotels, will be reintroduced. New Zealand will also increase the threshold at which low-value assets may be written off as a tax expense from $500 to $5,000 for one year, after which the threshold will revert to $1,000.  These measures aim to encourage, and bring forward, investment decisions. The number of businesses exempt from the requirement to pay provisional (preliminary, as we know it) tax will be increased.

New Zealand is introducing a wage subsidy for businesses suffering at least a 30 per cent fall in sales. The benefit will be $585 per full-time worker per week, for 12 weeks. The business must keep the employees on for 80 per cent of the time and have engaged with their bankers before applying for the relief.

United Kingdom

The UK tax authority has set up a dedicated helpline called the “HMRC Coronavirus Helpline” to assist businesses concerned about tax payments due to the disease. The authority pledged to discuss the specific circumstances with affected taxpayers and to explore solutions such as instalment arrangements, suspending debt collection actions and cancelling tax penalties and interest – the latter applying only in limited circumstances.

It is clear that the Irish revenue authorities have been much more proactive, to date, than in the UK because the Irish authorities’ position directly assists businesses in trouble to better plan their cash flow. 

The UK budget announced on March 11 by new chancellor Rishi Sunak contained a range of measures designed to assist businesses in the wake of Covid-19.  The chief mechanism is a one-year business rates holiday for retail, hospitality and leisure outlets.  The chancellor initially announced a rates holiday for smaller outfits only, but the measure has since been expanded to include everyone in the retail, hospitality and leisure sector.

Businesses with a low rateable valuation (up to £12,000 per year), already exempt from business rates, will qualify for a one-off grant of £10,000. Businesses with a rateable valuation up to £51,000 per year will be eligible for a grant (if insurance does not cover them for the Covid-19 downturn) of up to £25,000.

The UK Treasury will provide funds to the devolved administrations (Northern Ireland, Scotland and Wales) to implement similar rates reliefs for businesses.  Northern Ireland has already announced a three month rates holiday.

That the UK appear to have targeted their Covid-19 response towards alleviating business rates is partially explainable because the UK had embarked on that path before Covid-19 in any case. It might be possible (if the Irish government were in a position to fund local authorities to this tune) for a targeted system of rates rebates to be made available in Ireland to businesses in the hospitality sector. 

The chancellor also announced a temporary “Coronavirus Business Interruption Loan Scheme” to ease access to bank loans and overdrafts up to £5 million. The government will provide lenders with a guarantee of 80 per cent on each loan. The first six months will be interest-free, paid by the government. There will be no charge for the guarantee. The Bank of England is introducing a Covid Corporate Finance Facility to provide funding to businesses making a significant contribution to the UK economy.  The CCFF will fund businesses by buying commercial paper of one year’s duration and upon the same financing terms as the businesses would have got pre-Covid-19. The UK is also providing additional funding support to banks to support lending to SMEs.

China

The State Tax Administration of China has introduced a number of measures so far.  Certain pay (especially bonuses) paid to medical and other staff delivering care to affected persons is exempt from tax. Businesses involved in responding to the outbreak receive accelerated capital allowances on equipment used to increase production of necessary items and can benefit from a lower corporation tax rate. Small traders are exempt from the obligation to charge VAT. 

Affected businesses will be able to carry forward losses to set them against profits over eight years rather than the current five years. Tax filing deadlines have been extended and banks are encouraged to provide additional loans and restructure existing loans for affected businesses.

The idea of exempting medical staff from taxation, perhaps on the basis of special bonuses for working additional hours and at this critical time, is something which might find general acceptance and welcome here at home. 

Germany

The German government has announced a suite of measures to assist businesses. Key is the application and extension of a compensation benefit paid directly to employers where staff need to go, for economic reasons, on reduced hours.  It will apply to a business where at least 10 per cent of staff need to go on reduced hours and will apply, also, to temporary and agency workers. It is a scheme aimed at keeping people in their jobs during the critical Covid-19 period.   

In terms of tax administration, there will be the ability to defer tax payments “without strict conditions” on the availability of same. Taxpayers will be able to adapt 2020 tax pre-payments if/when it becomes clear that 2020 income will be below 2019 income. Enforcement measures (e.g. the attachment of bank accounts) and late payment penalties will be waived until December 31, 2020 for taxpayers who are directly affected by Covid-19.  The German tax authority’s approach is the one which perhaps most mirrors the Irish Revenue’s position.

Germany has also pledged to provide “no limits” financial support for businesses through access to cheap loans by loosening credit criteria and increasing guarantee supports offered to banks making qualifying loans to businesses. 

International tax considerations

Covid-19 has had an effect on people’s ability to travel. An international tax structure often involves the directors of a business travelling abroad to board meetings.  The place the directors meeting is held is usually important and, in many legal systems, constitutes the company’s place of central management and control and, therefore, its tax residence. 

If companies are considering major transactions during the period travel is disrupted, and where board meetings are required to be held, there might be a temptation to leave the travel aside and to conduct the meeting via telephone or video link.  Businesses will have to consider the impact on the tax residence of the company of such a course of action and perhaps, instead, restructure the board of directors to exclude persons who are unable to travel to the country of the tax residence of the particular company for the period of the travel hiatus.

In Australia, where corporate residence is a hot topic, the authorities have pledged to go easy on companies who, because of the travel difficulties, have to hold board meetings in Australia/phone in from Australia. According to the Australian Tax Office: “We will not apply compliance resources to determine if your central management and control is in Australia.”

What now?

To date, governments have directed their tax response to coronavirus towards assisting taxpayers with cash flow, the saving of jobs and the stimulation of investment. Some countries have moved faster than others in announcing and rolling out their plans. Each country’s response produces, in turn, ideas for other countries to consider. 

One difference, at present, between Ireland and many other countries, is that Ireland is in the middle of forming a government following the recent general election. The implementation of Ireland’s full fiscal response to the situation is likely to require legislative intervention which needs, in turn, a stable government and legislature.